Wednesday, December 12, 2012

The matatu strike had delayed a lot of folks but the check-in handled by CRS was relatively slow. It took almost 30 mins to check in but it was organized since the security was good. There was a lunch voucher given at registration - more on this later.

It seemed the majority of the initial questions were not related to the Financial Statements or Annual Report. There was a sense of frustration among the directors since the questions were about SWAG (aka freebies like T-Shirts, flour, etc).

The relevant questions came at towards the end of the Q&A on the Financial Statements.

Q: What property is Unga planning to sell?

A: 4 acres on Ngong Rd but it is earmarked for "Recreational Use" only thus the sale is probably limited to Sports Clubs or such users. It is unlikely, like in the old days, that a buyer can change the use. The MD even thought that Nairobi needs the green space.

Q: What is the valuation of the properties?

A: Unga revalues the properties every 5 years & the next revaluation is coming up in 2013. The ROA is quite low.

Q: Does Unga use GMO grains/products?

A: No, since the law does not allow GMO but the MD was emphatic that when the next drought hits Kenya, which has been the case every 3-4 years, GMO grains will be imported.

Q: Why not buy local grain?

A: The local grain is very expensive especially maize since NCPB pays KES 3,000 per 90kg bag. This means the farmers expect a higher price. Unga pays sooner than NCPB and will not buy low-quality maize. The biggest competition are regional, not national, millers who don't care about quality.

A: Seaboard is a large soft commodities trader & provides financing when banks may be more expensive or unwilling to do so. The purchases from Tanzania could drop if there is a ban on exports.

It was mentioned that the next 2-3 years will be tough with high interest rates, volatile exchange rates, high/volatile commodity prices, increasing costs and inflation. Competition has grown substantially from the regional (mid-sized) millers. Are they evading taxes?

The firm (& its subsidiaries) are planning to spend lots of capex to increase/improve capacity. I am not sure how these will be funded with the low ROA.

What was left unsaid but one could 'feel' was the question/risk of the election. Unga's buying centres are in areas (Nakuru, Eldoret) that were severely affected by PEV 2008. Imports have to come by road or rail from Mombasa which were disrupted.

The Board declared a KES 0.75 dividend & this was passed with nary a whisper. It was mentioned that dividends not swag is what shareholders should want.

Alan McKittrick & Andrew Stewart Ndegwa were re-elected as directors. There were 2 vacancies created by the resignation, of the erstwhile Chairman, Richard Kemoli & Jeremiah Kiereini. The new Chairperson is Isabella Ochola-Wilson who handled the meeting well despite the "swag" complaints & questions.

Some shareholders had complaints/questions unrelated to the Financial Statements but were gently chided by the Chairperson for not sticking to matters on the agenda. The matter came to a head when the agenda item regarding 'electronic dissemination' of information & dividends was being discussed. The Company Secretary explained why it was necessary to update the Articles & Memorandum of Association to 'match' the new laws. of A major gripe was that he (among other shareholders) did not have e-mail. The counter was that the abridged information would be published in the newspapers but some shareholders claimed they did not buy newspapers.

A section of shareholders were fed up of the proceedings & visibly agitated at the back & forth about the 'electronic dissemination'. Others started walking out since lunch was 'pending'. I think if they had offered the lunch packs earlier, the hall would have emptied out sooner. An appeal to wait till the AGM was over was ignored. No idea what was in the lunch pack but these must be the largest cost of holding the AGM.

An uneventful AGM with no surprises but the outlook seems bleak over the next 2-3 years unless there is a paradigm shift in the taxation regime, interest rates and business environment.